I would like some basic pointers with regards to capital gains on an inherited house.
In 1984, my grandmother changed the deeds of her home adding my mother - with the intention of simplifying matters when she died - my mother would automatically inherit it.
My grandmother continued to be the sole resident - paying all bills and maintenance, until she died in 2004. Following her death, the property was valued at 165,000 pounds by multiple estate agents, and was immediately put on the market.
It has took 1.5 years to sell, during which the asking price was slowly reduced until now where an offer has been accepted for
150,000 pounds.
My mother owns her own home and has never lived at the property in question.
Will the fact that my mother had her name added to the deeds count against her - will capital gains be based on the value of the property at the time my mother's name was added? Or could this be treated as a lost of 15,000 - no GC applicable.
Was the Grandmother 'dependent' on your mother?. If so then full relief may be available because your mother acquired her share before April
1988. I think it may be a point of contention though because your mother didnt buy the property for her mother.
If the relief I describe above is denied then your mother's taxable gain will be based on half the sale price less sale costs less half the value at the time of the gift inflated by the RPI index from 1988 to April
1998, the gain is then reduced by taper relief thereafter to the date of sale. Finally, deduct the CGT allowance (if it is still available to you) currently £8800.
I assume this is based on the fact that the house was valued at 165k at the time of death, but sold for only 150k - representing a loss of 15k.
This would assume though that the house belonged solely to the grandmother until she died, and then passed to the mother.
On a related subject, does anyone know the position relating to CGT on a property which you own but don't live in, if you *don't* own another property? I'm thinking of cases where people are provided with accommodation by their employer, but invest in property which they will move into some years later when they retire.
If they elected for the house to be their principal residence )and wasnt rented out) then its CGT free. But of they didnt then any gain will be subject to CGT. If hey did elect and also rented out, then the CGT will be pro-rata according to the relative periods, but with three extra years added to the PPR bit and knocked off the rented bit.
In this context the words "automatically inherit" are a bit of a contradiction in terms. I think you mean they were made joint tenants, such that they both owned the whole house together, and upon the death of either of them, the survivor would then become sole owner (as opposed to tenants in common, which would mean them both owning equal or unequal shares which either one could in theory sell independently of the other).
With joint tenants, the survivor does not technically "inherit" the house (or the "other half" of it), but is deemed to *already own* it. With tenants in common, on the other hand, the deceased's share of the house is part of the estate and will be inherited by the survivor only if the will makes provision for this (or intestacy rules so provide in the absence of a will).
For inheritance tax purpose, alas, this distinction does not apply, and a passing of ownership by survivorship is taxed the same as a passing of ownership by inheritance.
For the purposes of inheritance tax applicable to your grandmother's estate, this would presumably be treated as a gift with reservation and would have been ineffective in reducing her IHT bill. However, unless the house put together with all her other assets exceeded the IHT threshold there would perhaps not have been any IHT bill to reduce.
It might. There are basically two views that can be taken:
1) Half the house was gifted in 1984 and the other half passed by survivorship in 2004. Because the gift was ineffective for IHT purposes it ought also to be ineffective for CGT purposes, and mother should be treated as having acquired full value at time of grandmother's death. But I think (2) will prevail:
2) The taxman can have it both ways. Only half the house passed by survivorship, the other half by gift. So now that mother is selling it, half the sale proceeds will be treated as a capital gain on half the 1984 value, while the other half will be treated as a £7,500 loss on half the "inherited" value.
See above. Both, I think. Half and half.
You don't say how much the house was worth in 1984. Suppose it was worth £20k. So we're looking at a £10k gift gaining £65k in value. I estimate there will be indexation allowance of some £8k reducing the taxable gain to £57k, then taper relief of 35% off giving a taxable sum of £37k. Then deduct the £7.5k loss on the other half, and her £8,800 CGT allowance this year, giving a net taxable amount of almost £21k. Depending on your mother's other taxable income, she should expect to pay at most 40% of this (if she's already a higher-rate taxpayer), or at least 20% of it (unless her income is less than £7,185, in which case it will be a bit less than 20%).
Still, £4k and a bit won't make much of a dent in £150k.
I do. For GC read CG (as in CGT). Had she been deemed to have acquired the whole house at a probate value of 165k, she would have sustained a
15k loss.
As it is, she only acquired half the house at half of 165k and would hence sustain only half the 15k loss.
It remains to be seen what went into the forms as the equivalent of probate value, though, since the 165k "valuation" was only a bunch of estate agents' wishful thinking.
Not 'rented', but if the owner was 'absent'. Perhaps it would have been clearer if I made it clear that there needs to be 3 years for which the owner did not elect the property to be his PPR.
I don't think so. Mother acquired co-ownership of the whole house, but as grandmother retained co-ownership, this counts, for value purposes, as a transfer in 1984 of half the value of the whole house by gift, and of the other half of the value at death.
As mother did not, during her (co-)ownership, equitably share in the use and upkeep of the house, the gift was with reservation, and accordingly the first half should be subject to IHT (using half the house's 1984 value), *and also* to CGT (based on 22 years' gain), while the 2nd half of the value will be subject to IHT (based on the 2004 value) and to CGT based on 2 years' gain (or loss as the case may be).
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